Nearly a year in review part 1: the numbers that explain 2022

2022 will go down as one of the most prolonged downtrends for risky assets for decades.  There have been some protracted down moves, something that we have forgotten that can happen as the market relied on the “Fed put” and other central bank support to see them through periods of intense market turmoil and stress. Not so anymore! Central bankers aren’t bailing anyone out this year, the question as we move into 2023, who will blink first, the central bankers or the market? Below are some key numbers that we think help to explain 2022, which will give you a better foundation for your trading in 2023.

1, 0.38%: Even the Bank of Japan is tightening monetary policy

0.38% is the current yield on 10-year Japanese government bonds. The market had expected the BOJ to jump on the global bandwagon and start raising interest rates in 2023, but not in 2022. However, this has been a year of surprises, and instead, on 20th December, the BOJ adjusted its yield curve control measures allowing the 10-year Japanese bond yield to rise by plus or minus 0.5% instead of its previous band of 0.25%. Although interest rates remain at -0.1%, it is the biggest “pivot” that we have seen from any central bank this year. The market impact was instantaneous, the yen rose by 4% vs the USD, and 10-year JGB bond yields surged by the most in 2 decades. The longer-term implications of this move are also worth noting. This is likely to be a major turning point for the yen, and it could also signal the end of yield curve control. There will be a new BOJ governor next year, and while the incumbent Kuroda said that this move was not tightening and instead was a result of global market volatility, he has done some of the heavy lifting for the next governor and helped move Japan a step closer to conventional monetary tightening, which could come in 2023, as Japanese core inflation is running at a 40 year high of 3.6%.

2, $127.98: the high for Brent crude oil

This was the peak for Brent on 8th March 2022. Except for the odd trading session, Brent crude stayed above $100 per barrel until July. After that Brent crude has fallen sharply and is currently trading around the $82 per barrel mark. However, that hasn’t stopped the commodity space from becoming the best performing sector on the FTSE 100 this year. The top performing stocks on the FTSE 100 include: BAE systems, the defence company, BP, Shell, and Glencore, all up between 40 and 50% this year. The question now is, how will these companies perform as we move to 2023? There is still a war on, and swathes of Europe are rebuilding their defences, so defence companies could be a multi-year investment. Likewise, even though Brent crude is down nearly $50 per barrel since its March peak, it’s still its above the 5-year average of $69 per barrel. Thus, oil producers can still make a decent profit even when oil has fallen this far. With inflation still running way above expectations, and China ending its zero covid policy, we still have faith in the value trade for the first half of 2023.  

Watch out for part 2 later this week!